From national to regional grid planning Differences and harmonisation opportunities in the operations of the Nordic TSOs Fortum Energy Review, November 2019 Fortum Energy Review 2019 Foreword From national to Nordic transmission system operations ortum is a true Nordic elec- transmission infrastructure and system still many harmonisation opportunities tricity company with a pres- operations are often optimised differently for Nordic grid operations and planning. ence in all Nordic and Baltic in the various Nordic countries. Fortum believes that farsighted and trans- price areas through electricity This report, written by Pöyry on parent grid planning decreases the uncer- production and/or consump- Fortum’s assignment, reveals that the tainty of investment decisions for market Ftion. We are a strong advocator for a Nordic Transmission System Operators participants as well as the overall cost of fully harmonised Nordic regional elec- (TSOs) have different historical and oper- the energy transition and electrification of tricity market, as we – through our geo- ational perspectives. Grid investments our industries. All Nordic countries aim to graphical presence – are able to witness are primarily driven by national interests become climate neutral during the 2030s. the Nordic benefit (“Nordisk Nytta”) that and prioritisation. Even in joint projects This means thousands of megawatts of the common electricity market delivers where Nordic cost-benefit methodology renewable energy investments requiring every day to our societies. The Nordic is used, national interests often take new grid infrastructure and better sys- electricity market enables the imple- precedence over common benefits. There tem operation so as to not endanger the mentation of the Nordic countries’ high are also clear differences in the approach energy transition. ambitions for climate neutrality, energy to the existence and management of Fortum encourages the Nordic TSOs transition and electrification of indus- congestion in the transmission grid. In and Nordic policy makers to accelerate tries at a lower cost than if each country addition, present balancing tools are the harmonisation of operation and plan- were to optimise the electricity market not harmonised across the Nordic TSOs. ning and to increase the overall co-oper- from a national perspective. Finally, the transparency of information ation inside the region, in order to ensure Fortum favours an efficient, compet- about the market is not disclosed in a that the underlying physical infrastruc- itive and market-driven regional power systematic way across the TSOs. ture facilitates efficient energy markets market where producers and consumers Many of the differences can be and a cost-effective energy transition. have an equal level playing field relat- explained by the fact that the legislative Fortum thanks Pöyry for writing this ing to market operations and market framework for regulating TSO obligations report and all the people interviewed for access. Fortum’s own experience and this is not the same across the Nordic coun- taking the time to share their thoughts. report show, however, that this objec- tries, and hence there is room for national Fortum hopes this report will provide a tive is currently not fully materialised. perspectives and interpretations. good basis for continued discussion on A level playing field is not always equal Fortum's assessment, based on the enhancing the Nordic Electricity Market throughout the regional market because findings of the report, is that there are and Power System. Fortum Energy Review 2019 Key Fortum messages based on the findings of the Pöyry report: The internal electricity market with well-developed grid infrastructure, both internal and cross-border, is a key enabler for reaching climate neutrality by 2050 through energy transition and electrification. How the co-operation of transmission system operators evolves in the coming years will be of crucial importance if we are to reach these objectives as cost-efficiently as possible. Fortum believes that the regional Nordic electricity market is a key enabler for the Nordic countries’ high ambitions for climate neutrality, energy transition and electrification at a lower cost than if each country were to optimise the electricity market from a national perspective. In order to realise the full potential of the Nordic electricity market, the Nordic countries should proceed from developing common market rules to harmonising the regional system operation and planning. Our messages are primarily targeted to the Nordic policy makers, regulators, TSOs and other stakeholders, but they are equally applicable at the EU level. • Energy transition and electrification will require • A separate regional financing hub should be significant strengthening of the regional grid trans- established where congestion revenues would be mission system. collected. These pooled resources should be used • Farsighted and transparent grid planning to remove bottlenecks from the most congested decreases the uncertainty of investment decisions areas. for market participants and the overall cost of the • There should be a clear target to decrease the num- energy transition and electrification. ber of price areas in the Nordic power market. • Enhancing and harmonising the TSO operations • Nordic balancing markets should be harmonised and regulations at the regional level requires strong and the number of balancing market places political backing. reduced. Market access to balancing market places • A co-ordinated regional approach in grid planning should be equal and technology neutral. should be based on top-down optimisation of grid • Market information should be disclosed in a sys- development. The regional plan should be more tematic and transparent way across the Nordic than a compilation of national plans. TSOs. • The socio-economic benefits of grid investments • The Nordic Regional Security Co-ordination (RSC) should be assessed from the regional perspective should be strengthened to be the real co-ordination rather than from the national perspective. centre for Nordic system operations and planning. • Congestion revenues should be invested in grid development to reduce existing bottlenecks. 3 Fortum Energy Review 2019 Fortum Energy Review November 2019 Publisher: Fortum, Public Affairs: More of Fortum’s positions on Fortum Corporation Merja Paavola topical energy issues: Keilalahdentie 2–4 tel. +358 50 396 1161 www.fortum.com > About us > 02150 Espoo, Finland Our company > Public affairs tel. +358 10 4511 Authors: Fortum, Trading and Asset Optimisation: Stephen Woodhouse, Pöyry Simon-Erik Ollus Juha P. Leinonen, Pöyry tel. +358 40 179 0166 4 Fortum Energy Review 2019 Contents INTRODUCTION Background .....................................6 Objectives ......................................6 PHYSICAL AND POLITICAL CONTEXT .............8 TRANSMISSION GRID INVESTMENT Grid development and investment ................14 Cost and benefit sharing in grid investment ........16 Cost benefit analysis for grid investments .........17 Case study: Danish-German border and Skagerrak 4 ...18 SYSTEM OPERATION Congestion management ....................... 20 Contingency management .......................21 Balancing model and tools .......................23 TRANSPARENCY ...............................24 POLITICS AND GOVERNANCE Regulation and governance model ................26 Nordic cooperation and political cohesion .........27 Legislative framework ...........................29 About this publication: This report (pages 6-31) has been prepared by Pöyry Management .................................... Consulting for Fortum Oyj. It is an independent SUMMARY 30 report by Pöyry and all the findings and views expressed in the report reflect the views of Pöyry as they were interpretable based on public information and interviews. ANNEX A .......................................31 While Pöyry considers that the information and opinions given in this publication are sound, all parties must rely upon their own skill and judgement when making use of it. This publication is partly based on information that is not within Pöyry’s control. Therefore, Pöyry does not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in this publication. Pöyry expressly disclaims any and all liability arising out of or relating to the use of this publication. 5 Fortum Energy Review 2019 1 Introduction Background cross-border investments have given and their behaviours and also to iden- ordic TSOs have a pivotal mutual benefit; but increasingly the ben- tify areas where TSOs could align more role in the electricity efits of additional investments are asym- closely to deliver Nordic (and European) system, with responsibil- metric; and within the range of plausible benefits. More detailed objectives of the ity for system operation future outcomes one of the countries study are as follows: and transmission grid may actually face welfare losses arising • to bring up the main differences in Ndevelopment as well as key aspects from the investment. Nordic TSO operations, rules and of design of the electricity markets. Investments are considered indi- practices as-is; Despite a strong history of collabora- vidually and despite the TSOs having • to understand and explain differ- tion, the organisational arrangements, considerable freedom to share costs and ences and the underlying drivers governance structures and ways